Dear Dave: My husband and I own three commercial buildings in Boise, Idaho, that are leased out long-term. We owe about $500,000 on one and $400,000 on each of the others, and they earn $190,000. The only other debt we have is a small amount left on our mortgage. I know you don’t like debt, but is it OK to owe on commercial properties that are making good money?
Dear Dawn: I own several commercial buildings, and I don’t owe a dime on any of them. So, I can’t tell you that I think it’s okay to have debt on commercial buildings. I believe the best plan for building wealth is to become debt-free.
Now, from the situation you’ve described, that doesn’t necessarily mean you guys should be in panic mode and start selling everything in sight. But I do think that you should systematically work your way out from under these debts over the next few years.
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If I were in your shoes, I’d go ahead and get the house paid off first. Then, I’d take a look at these commercial properties, and begin working the debt snowball on them. Start throwing as much money as you can at the smallest debt, while making minimum payments on the other two. When you get it paid off, roll that amount over — along with every dime you can dig up —and attack the second largest one. Follow these steps until you pay off all of your commercial properties.
It might take up to 10 years in your case, because we’re talking about at least $1.3 million in debt. If you have a bunch of equity in one you don’t particularly like, you might consider selling it and throwing the cash at the remaining two. But whatever the timeline, I’d develop a hardcore game plan to get rid of this debt.
Dear Dave: My wife and I are debt-free except for a car and our house. The car is financed through her mom, and her dad agreed to send us half of the payment each month. We owe $7,700 on the car, and we have enough cash right now to pay off the car in full with plenty left over. Should we do this, even though her dad is making $100 of the payment each month?
Dear Dustin: If her father had agreed to send you guys $100 each month, ask him to continue doing that for the duration of the agreement. Then, you guys pay off the car now with your cash. There’s nothing dishonest about this, as long as you explain the plan to her parents and they’re agreeable.
The reason for this approach is two-fold: it gets the debt paid off, and then you can get the car put in your name. Plus, a situation like this represents drama just looking for a place to happen, if it hasn’t already. Family relationships take on a weird vibe when money has been loaned and borrowed.
If they’re not agreeable to the idea, that’s okay. All you can do is ask. But one way or another, I’d be out of this situation before the sun goes down!
Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.